Good news rarely comes out of the UK housing market these days and therefore we are surprised to see the lack of a response to the stronger housing market numbers.
This may be partially due to the fact that even though online property search firm Rightmove reported 1.2 percent rise in house prices during the month of May, they also criticized UK homeowners for raising prices in the current market environment. Even Bank of England Governor King has warned that prices are set to fall further, but sellers have refused to adjust their prices to more realistic levels. If this trend continues, housing market inventory will build and eventually prices will have to come down. Either way, a rate cut by the BoE is not in the cards right now according to the interest rate market. The spread between 2 and 10 year gilts are at the brink of inverting for the first time in 6 months, which means that no one expects the Bank of England to cut interest rates anytime soon. We expect this same concern about inflationary pressures to be reflected in Wednesday’s release of the minutes from the latest Bank of England meeting.